Can I use a personal loan to buy a used car?

Buying a car with a personal loan

Can I use a personal loan to buy a used car?

If you need finance to buy your car, a personal loan or bank loan from a bank or building society can be one of the cheapest ways of borrowing the money if you can get a good rate. But remember to look into the pros and cons of personal loans first. Read on to get the facts you need.


Securing a loan against your home risks the roof over your head if you don’t keep up the repayments. You may get a better rate if you do but is this worth the risk?

A personal loan and a bank loan are different names for the same thing.

You can use these loans for a used car or a new car – you’re not limited in your choice.

Shop around for the best interest rate by comparing annual percentage rates (APR). The APR includes interest and all of the lender’s other charges. This can be done before you go to your dealer so you’re armed with how much you can borrow at what rate.

Applying for a personal loan may affect your credit rating as the company lending you money wants to check if it can trust you to pay it back.

Be careful about this if, for example, you’re also planning to take out a mortgage. You can limit the impact on your credit rating by using an eligibility calculator that does a soft search.

Soft searches don’t have any impact on your credit rating. Search online for other comparison sites that offer soft searches.

You can check your credit score for free from the credit score companies, MSE Credit Club, Credit Karma, and, ClearScore. Some also offer to match you to loans with a soft search.

Check the monthly repayment amount and the total amount you’ll end up paying the lender. This can help you find the most affordable option and the one that will cost you the least overall.

Make sure its affordable. If you’re not sure whether you could meet the monthly payments on top of your household expenses, work out what you can afford.

Always check whether the interest on your loan is fixed or variable. If it’s fixed, the interest rate will stay the same until the loan is paid off.

A variable interest rate can go up or down. Be very careful with loans this – if you can only just make the initial repayments you could get into money trouble if interest rates go up, so think carefully before taking them out.

If you own your own home, you might be tempted to consider a secured loan.

However, this is a much riskier option as the money you borrow is secured against your home.

This means that if you can’t repay the loan, the lender could force you to sell your home to pay off what you owe.

Find out more about secured and unsecured loans.

Pros of personal loans

  • It’s one of the simpler ways to finance your car.
  • Can be arranged over the phone, internet or face-to-face.
  • Can be for the whole cost of the car, or for a part of it.
  • If you have a good credit rating you should get access to the best rates available. If you can get access to the best rates a personal loan could be cheaper than dealer finance. However, if there’s a 0% finance on offer it’s possible that may work out cheaper.
  • Interest rates are normally fixed – although they can be variable, so always check.
  • You choose the loan period (typically one to seven years), but remember – the longer the term the more you are ly to pay in interest overall.
  • Un with some other forms of car finance, you own the car while paying off the loan so if you got into financial difficulties you could sell it.

Cons of personal loans


If you’re planning to borrow just under £3,000, it might be worth borrowing a little extra in order to get a cheaper rate.

This is also true if you want to borrow just under £5,000.

For instance, the APR for loans of £3,000-£4,999 could be 12%, yet as little as 3% for loans of £5,000-£7,499.

  • Monthly payments can be higher than other forms of finance, but this depends on the term, and costs.
  • You might need to wait for the money to come through, although some lenders make funds available almost immediately.
  • Many people can’t get advertised rates. The rates advertised are often what is known as ‘representative’ or ‘typical’ APR’s. This means only 51% need to be eligible. Having a good credit score will help but does not guarantee you can get it.
  • As you own the car you will be responsible for all repairs.
  • You might end up borrowing more than you planned. That’s because most banks won’t lend less than £1,000 or for less than 12 months, or because interest rates might reduce the more you borrow offering a temptation to increase the size of the loan.

How a bank/personal loan for a car works

You can use a bank loan to purchase a car privately as well as from a dealership. That’s because once the loan money is in your account, you can treat it cash.

If you’re thinking of getting a loan, use our Loan calculator to work out how long it would take to pay it off and how much you’d need to repay each month.

You can also compare different rates and lengths of loan.

If you’re comparing loans online, make sure you check them on a few different comparison sites. Here are some suggestions:

  • Lovemoney
  • Moneyfacts
  • MoneySuperMarket

You may be offered payment protection insurance (PPI). Think carefully about whether you need this, and take a look at our Do you need payment protection insurance? to help you decide.

Once you’ve agreed with your bank, the loan will be in your account within a few days. You can then go to your car dealership to purchase your car.

Personal loans are repaid monthly. A payment schedule will be set up with your bank, so you’ll know exactly how much you’ll be repaying.

Loan protection

If you can pay some of the cost on a credit card you can benefit from section 75 protection. This can help you to resolve issues if you have them later as the credit card company will be jointly liable with the car dealer should anything go wrong.

Cooling off period and cancelling

Personal loans come with a cooling-off period from either the date you sign the loan agreement or from when you receive a copy of it – whichever is later.

A cooling-off period means you have 14 days to decide whether the loan is right for you, and if not, you can cancel it. It lets you withdraw from loans up to £60,260.

If you do cancel inside the cooling-off period, you’ll still owe the capital and interest that has built up over that time. You’ll need to repay this within 30 days.

Even if you cancel the loan, this doesn’t cancel your agreement to buy the car from the car dealership, so you’ll still need to find a way to pay for it.

Settling or paying off the loan early

You’ll need to write to your lender and ask for a settlement amount – the amount you need to repay to cover the loan in full.

Once they confirm this you’ll then have 28 days to pay off that amount. You should also get a rebate of any future interest and charges you have paid.

You can also ask for a partial loan settlement. This will make your loan smaller, and so will affect how you pay for the rest of your loan. The rebate you receive for any interest and charges will be less than if you pay off the whole loan.

When you contact your lender, they need to be clear about how you’ll repay the rest of your loan. You can negotiate, which might mean you pay the rest of the loan off in a shorter time, or pay smaller amounts each month.

Getting the best personal loan deal

  • Don’t just accept the first rate you are offered by your bank or building society.
  • Shop around to see which providers are offering the cheapest interest rates. Compare APRs, but keep in mind that a poor credit history could affect how much you can get. A comparison website can help you do this.
  • Get a quote from the lender before you apply. If they need to a credit reference search, make sure it’s a ‘quotation search’ or ‘soft search credit check’ which doesn’t leave a mark on your credit file.

Use our Loan calculator to find out how much your loan could cost.

What happens if you can’t afford to pay

You may be able to better control your personal loan, and you can find out more on How to reduce the cost of your personal loans.

If you’re struggling to meet household bills as well as your car payments, you can get free, confidential advice from a debt advice organisation or charity.

Find out where you can get free debt advice.

You could also:

Sell the car

Because you own the car, you can sell it and use the money to pay off as much of the loan as possible. This will significantly lower the amount you’d have to pay per month – and the number of months you’d need to keep paying – to pay the full loan back.

Talk to the finance company

They might offer to extend the length of the lease, which would lower your monthly payments, or come to some other arrangement to help you out.

Early repayment

You could also think about getting a settlement figure from your lender, which would be one final larger payment to end the agreement. You could be better off because you may be able to negotiate a price you can cope with. You can then keep the car or sell it.

If you’re having more serious money problems, get free debt advice.


Should You Use a Personal Loan to Buy a Used Car?

Can I use a personal loan to buy a used car?

Most of us live in places where we need a car to live. There are some cities, New York City, where the public transportation system is amazing and the best mode of transit. It gets you where you want to go much faster than a car. Unfortunately, not all cities follow their lead.

I live in a city where the public transportation system is seriously lacking. If I did not have a car, I would not be able to go anywhere. Most of us cannot afford to pay for a car in cash, so that means we need auto finance, usually in the form of a personal loan.

Let’s dig a little deeper into what it means to get vehicle finance and if you really should.

What Is A Personal Loan?

A personal loan is when a lender of some type allows you to borrow a certain amount of money. You promise to repay the money in regular monthly increments for a set length of time. A personal loan has interest attached to it.

Interest is what the lender charges you to borrow the money from them. The amount of interest is your credit score and other factors income. A personal loan can be used for any purpose that you would .

There are some loans called out for special purposes, but in reality, you can use it as you choose.

Yes, you get use a personal loan for just about any use. There are some personal loans specifically for purchasing cars. There is a major difference between a personal loan and an auto loan. An auto loan requires the borrower to use the vehicle as collateral. If you default on the loan, the lender can take possession of the car. A personal loan is an unsecured loan.

That means, if you use a personal loan to buy a used car, the lender does not use the car as collateral. When you are buying a car from an individual, it makes sense to use a personal loan. If you do not want full coverage car insurance, you should get a personal loan instead of an auto loan.

When using a loan to auto finance using a traditional auto dealer financing, the lender makes you have full coverage insurance.

Should I Buy A Car?

Obtaining a personal loan to buy a used car, or even a new car is a big deal. Cars are expensive and the cost only continues to rise. It is also expensive to maintain an older car that needs constant repair work.

When considering if you should buy a car, there are some questions you should answer. Why do you want to purchase a car? Can you afford to purchase a car? I am going to focus on the first question here.

We will talk about the second one further in the post.

In some cases, you need a car no matter what. Other times, maybe you just want something new, or you are tired of fixing your current car. The costs of car repair can easily creep into the thousands. Your current car may not even be worth the cost of the repairs.

You really need to weigh the cost of the repair against the value, monetary and emotional, of the car. You should consider how often are you repairing the car.

Is this a once every couple of years cost? Or are you sinking hundreds to thousands of dollars into it every few months? Only you can determine the best course of action but answering those questions can provide guidance.

What Are The Advantages To Getting A Loan to Pay For A Car?

There are some advantages to obtaining a personal loan to buy a used car. If you live in a place where public transportation is limited, you need a car. A loan can help you purchase a car when you do not have the cash. Let’s face it, few of us have the cash to pay for a car.

If we did not take out a loan, we would not be able to afford a car. If you obtain a personal loan to pay for a car, you are not subjected to the same parameters as when you get an auto loan. When you get credit for a used car, the lender wants you to have full coverage auto insurance.

You also must use the car you are purchasing as collateral.

What Are The Disadvantages To Getting A Loan to Pay For A Car?

So, let’s be honest here. The major disadvantage of a personal loan to buy a used car is more debt. Americans are drowning in auto and other debt and it continues to rise each year. The reality of a car is that as soon as you drive it off the car lot, the value goes down.

With a few exceptions, cars do not retain value and will never be worth what you pay for them again. As mentioned above, they are expensive. Your loan payment could be anywhere from $300 to over $1000. That is a large chunk your budget. It may not be one you can afford. You may find yourself in a position of just buying the cheapest car you can afford.

You may get stuck paying hundreds of dollars per month for a car you do not even .

If I Do Not Pay Back My Loan, Can I Lose My Car?

When you use a personal loan to buy a used car, it is an unsecured loan. That means that you do not have to use your car as collateral. If you do not pay a personal loan, the lender will find ways to collect on the loan.

However, they will not take your car as a result. If you obtain an auto loan, the car you purchase becomes collateral. That means, if you do not pay the loan, the lender had the right to take you a car. Believe me, they will.

Lenders do not mess around when it comes to getting their money.

If you do not pay your bill, they will repossess your car. Often times, it happens in the middle of the night. If you know you are not able to pay the loan, the best thing to do is contact the lender and try to work with them to make different payment arrangements.

Does My Budget Really Matter?

Yes, your budget is one of the major factors in deciding on a personal loan to buy a used car. You need to be able to fit a personal loan into your budget before you decide to use one for anything.

 You should take a hard look at your budget to make sure a car payment fits. Considering to buy a car is not a decision that should be made lightly.

If you cannot afford to pay the car payments each month, you are setting yourself up for failure.

You could lose the car. You could impact your credit. You may not be able to get another loan. That is a situation you do not want. The first thing you should do is use a budget app to determine how your finances look. Determine how much money you bring home each month and how much you pay out in expenses. The amount that is left is what you might be able to pay for a car payment.

How Can I Budget For A Car?

How to Get a Personal Loan to Repair Your Car | Loanry #carrepair #autrepair @pepboysauto

— | Loan Shop ? (@LoanryStore) July 15, 2019

Once you see your monthly expenses listed, you can begin to make adjustments. Often times, we do not even realize how much money we spend in a month until we write it down. Begin to eliminate unnecessary expenses, such as that gym membership that you are not using. You can also see some habits that you might be able to cut down.

For example, do you eat ten? It can be expensive and when it is listed for you, you can see just how expensive. Perhaps, you decide to eat out only two nights instead of five. That could be a significant savings for you each month, without much impact. Look for other ways to reduce spending to hit your budget for a car.

These savings could add up to the money to pay for a personal loan to buy a used car.

What Does My Credit Have To Do With It?

Your credit score has everything to do with it. Ultimately, it will decide how much you pay per month for a personal loan to buy a used car. Your credit score is an indicator to lenders about your credit worthiness.

It also gives them insight as to whether or not you will pay back your loan. The lower your credit score is, the higher your interest will be. Interest is what a lender charges you to borrow money. When your credit is low, the lender feels it is risky to lend you money.

They charge you a higher interest because they are taking a risk by lending you money.

Can I Improve My Credit?

It is possible to improve your credit score. It takes consistent and hard work. The first thing you need to do is make all of your payments in full and on time. Late or missed payments are the leading cause of bad credit. Start by making all payments on time.

Then you need to begin to decrease the amount of debt you have. When you have a high amount of debt, it also decreases your credit score. You have a debt to income ratio. The higher your debt is by comparison to your income negatively impacts your credit score.

Therefore, the more you are able to decrease your debt, the more positively it impacts your credit.

How Do I Know Which Loan Is Right For Me?

When you decide you want a personal loan to buy a used car, you should find the best one for you. To do that, you need to know how to shop for a car loan. It is helpful if you have some understanding of how a loan works to find the one for you.

All lenders attach interest to any loan they give you. The interest rate changes from lender to lender, so you can look for the best interest rate for your needs. You can also look online for a loan. Online loans have an easier and faster application process.

Often times, online lenders do tend to have a higher interest rate.

You can check out Loanry and our offer. We connect you with reputable lenders whom you can trust to honor the deal between you. We partnered up with Fiona and they selected trustworthy lenders. If you’re interested, put in your information below to potentially get offers:

Are There Other Options Besides A Personal Loan?

There are some options available to you besides obtaining a personal loan to buy a used car. You have the option to save the money to buy a car before you actually buy it. This allows you to have the money you need to buy the car without adding additional debt.

You do not have to worry about making a monthly payment. This also means that you do not have to worry about not having the money to pay the loan. You could borrow money from family or friends. They may be able to loan you the money without having interest added.

They may be able to offer you better loan terms which makes it easier to pay back.

Auto Loan Basics Spelled Out: Lending 101


The real question here is, should you buy a car? You are the only one who can answer that question. You need to understand that cars are expensive.

No matter what route you go, you are going to put out a significant amount of money. However, most of us need cars to get through everyday life.

We need transportation to get to work, school, appointments, and attending to basic needs grocery shopping.

You may currently have a car that is sucking money in repair costs. That may not be the best way to spend that money. You may be able to get a car payment that is less than paying for constant repairs.

You have to be smart with your car and loan shopping. Loans with high interest will cost you more in the long run, too. You need to take a look at your budget and make sure you can afford a car payment.

Taking on a car payment that you cannot afford sets you up for failure. You can hurt your credit. You can lose your car. You will lose a lot of money. Be honest with yourself and what you can afford before taking on another loan payment.

Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.

Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.


Can I use a personal loan to buy a used car?

Can I use a personal loan to buy a used car?

Whether it’s to consolidate high-interest debt or help with large purchases, such as a car, a personal loan can be a convenient option. Personal loans are the fastest-growing type of consumer debt, according to Experian, with 11 percent of American consumers having a personal loan averaging $16,259.

Personal loans are just that — loans for any type of personal use. These loans can come from a bank or other lending institution that lets you borrow a predetermined amount of money that you repay. Those monthly payments will go toward both the original balance and the interest you’re being charged for the personal loan.

Getting a personal loan requires doing some research. You may have seen those offers via mail or email inbox luring you with offers of an easy application process, great rates and terms.

Carefully compare rates to make sure you’re getting the loan that’s best for you. Use a site  Credible to get prequalified for loans ranging from 1,000 to $100,000 in just two minutes.

You can compare rates side-by-side with zero impact on your credit score.


So you’ve got your eye on a new or used car you want to purchase. Getting a traditional auto loan from the car dealer isn’t the only way to finance the car. In fact, it may even make more sense to get a personal loan, depending on your situation. While this is less common, with only about 4 percent of car buyers using a personal loan for their purchase, it can be a viable option.

The first step to getting a personal loan is filling out an application to get the qualification process started. The lender will closely review your income, employment history and credit score to determine whether you will get a loan and at what rate. The lower the interest rate the less you’ll have to repay in the long run.

Some tips on getting the best interest rate include:

  • Shopping around to know what rates are available
  • Checking with the lending institution you already have a relationship with
  • Improving your credit score
  • Using collateral
  • Selecting a shorter repayment period

Most people don’t enjoy the haggling in the finance department that comes along with financing a car directly from the dealer. Walking into the showroom already knowing you have the funds to pay for the car through a personal loan can make the process much easier and gives you a little more power when it comes to working out the price of the car.

Whether you select an auto loan or personal loan, sticking to your budget is key. To help determine your approximate repayments costs try using an online personal loan calculator for peace of mind and use Credible to see what rates you qualify for.


Auto loan vs. personal loan

One of the primary features that make personal loans different from car loans is that personal loans are unsecured. While your car can be repossessed if you don’t repay an auto loan as agreed, there’s no asset connected with a personal loan. However, because an unsecured loan is risky, personal loans often have higher interest rates.

An auto loan has restrictions as to the type and age of car you’re purchasing. A personal loan has no restrictions as to what you can use the funds to buy. Also, you can buy the car with a personal loan and if there are funds leftover you’re free to spend it any way you want.


Un auto loans, prepayment penalties and fees are often associated with personal loans.

When taking out a personal loan for a vehicle purchase makes financial sense

  • If you’re buying a car directly from an owner and not the dealer, a personal loan is ly the only way to go. Without the help of a finance department on-site, you have to come up with the money for the vehicle yourself.
  • You want ownership of your car immediately. With a personal loan you own the car outright without having to wait until the final payment is made as with auto loans.


  • There’s no restriction on a personal loan if you want to buy a much older car. With some car loans, you can only buy a used car if it’s under a certain age. This usually rules out the classic car enthusiasts looking for a 1969 Pontiac GTO.
  • You want a more affordable insurance policy. With personal loans, you’re not required to carry full coverage and can shop around for a less expensive policy.

Why a personal loan may not be the way to go for this kind of purchase

  • If you want the most competitive rates for your car purchase, an auto loan may be the way to go. Their rates are often more competitive because it’s a secured loan.
  • Credit plays an even larger role for an unsecured personal loan. It can be more challenging to qualify for a personal loan if you have a lot of blemishes on your credit. If you do get the loan with credit blemishes, you will ly wind up paying a much higher interest rate.


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